Cheap, long-term loans from the federal government's new Regional Investment Corporation are giving drought-hit farmers some useful finance options and bargaining strength as banks review their help deals with customers.

With the big dry still caning much of eastern Australia, RIC confirmed it has picked up the pace with discounted lending at 3.58 per cent interest.

In the six months to May 31 it approved about $135 million to 138 borrowers taking out new loans, or using RIC funds to repay up to half their core bank debts.

Some borrowings have been for restocking or to cover cropping costs in areas which have lucked some useful recovery rainfall.

Bruce King

Funds have also gone towards buying stockfeed or improving water and fencing infrastructure to help drought proofing or management goals.

In some circumstances banks have come back to customers with a revised offer after we've approved a loan - Bruce King, Rural Investment Corporation

Farmers can apply for up to $2m in 10-year loan terms, with the first five years on interest-only repayment terms.

"We didn't have much traction when we kicked off last year, but we've seen some very strong interest of late, and banks have lowered their rates to match us," said RIC chief executive officer Bruce King.

"In some circumstances banks have come back to customers with a revised offer after we've approved a loan."

RIC aims to lend $500m a year to farmers seeking funds for drought help, drought recovery or for farm business investments.

Rural financial counsellors report some bankers have encouraged farmer customers to talk to RIC to help them prune back debt costs.

ANZ retreats

The appeal of RIC's loan options to drought-weary borrowers comes as ANZ is set to wind up its 1pc rate discount on overdrafts and variable rate term loans for customers in drought affected NSW and Queensland regions.

The 12-month drought deal began last August, also giving producers options to restructure various farm debt arrangements.

Central western Queensland rural financial counsellor, Rachel Bock, at Longreach, said the move took pressure off many ANZ customers, giving them time to consider and rearrange their finances.

"We've had a number of clients where the result has been very positive, although we're now in the end of financial year period when banks will be reviewing their situation again," she said.

ANZ's agribusiness head, Mark Bennett, said the 12-month deal had given farmers "time and space" to make decisions while freeing up some repayment costs, potentially enabling them to divert cash to other drought expenses.

ANZ would continue a 1pc discount on working capital loans to drought-declared applicants from a $130m funding pool which was still "some way from being exhausted".

Westpac has a similar $100m loan fund offering up to $1m in carry on finance at 3.58pc interest for drought declared farm sector customers to pay household or business costs ranging from fuel to school fees and restocking expenses.

Carry on loans are at a significant discount on most finance available, but we have no plans to discontinue it while drought conditions remain as they are - Peta Ward, Westpac

Acting national manager, Peta Ward, Toowoomba, said some farmers were variously using funds for restocking where they had received rain, or to buy stockfeed where they had not.

"We've seen a bit of winter crop-related spending in NSW and Queensland, but the uptake is patchy - many people are sitting back awaiting a decent break," she said.

When introduced last August during a rush of banking sector drought offers, Westpac claimed its special lending rate was almost 3pc below the bank's standard business loan.

"It's a significant discount on most finance available, but we have no plans to discontinue it while drought conditions remain as they are," Ms Ward said.

Help needed after rain, too

NSW Farmers hoped bankers would hold the line on lending discounts and overdraft extensions until seasons truly improved.

Business, economics and trade committee chairman, Peter Wilson, Trangie, said various concessional rate offers from banks, and promises not to charge penalties on term loans if farmers failed to meet repayments, should run for 12 months after the season recovered.

"Rain tomorrow doesn't mean farms will suddenly generate income - that will take a year, at least," he said.

Don't leave your bank in the dark about how you're really going and don't try to antagonise them, or pull the wool over their eyes - Peter Wilson, NSW Farmers

However, he felt lenders were relatively tolerant of farmers' earnings struggle, and to keep them on side he urged producers to "keep talking to your banker".

"Don't leave them in the dark about how you're really going and don't try to antagonise them, or pull the wool over their eyes.

"Banks are entitled to revenue from their loans, but it seems to me they prefer to keep the relationship rather than pull the pin on borrowers."

He conceded, however, some may be reluctant to offer a good deal "until you go looking elsewhere, like RIC".

RIC deals `complicated'

Yet, while RIC provided circuit breaker options, its loans involved "more rigmarole" than commercial lending approvals, and borrowers were left juggling a relationship with two lenders - "a fuss many farmers would prefer to avoid".

Banks seem to be honouring their own concessional rate commitments, although if it rains they will probably look to review their arrangements fairly quickly - Susan Kelley, Rural Financial Counselling Service

Rather than maintaining existing arrangements, bankers saw logic in RIC providing discounted loans or refinancing up to 50pc of a farm's business debt.

"In the past six months we've seen quite a lot of interest in what RIC's offering producers with term loans and long term overdrafts," said Ms Kelley, whose Tottenham to Condobolin territory had clients experiencing a third consecutive failed cropping season.

"At the same time, banks seem to be honouring their own concessional rate commitments, although if it rains they will probably look to review their arrangements fairly quickly."

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